Merging two previously fierce competitors is a recipe for friction. As carsales.com.au chief executive Greg Roebuck says: "We used to try to beat these guys up, and now we're sitting next to them."
Growth by acquisition is a common way for small and medium-sized enterprises to gain clout and scale, but the potential for culture clash can be neglected as SMEs often lack the human-resource departments of large corporations.

"Staff concerns were mostly about culture-people at Upstream saying they'd heard the Print Solutions culture was very male-dominated and blokey, and feedback from the other side saying Upstream wanted to be dominant," Tilley says. "[As chief executive] you are caught between consultation but also showing strong leadership by saying, 'This is the direction we are going in'."

One strategy was to list the cultural concerns of both sides and read them to each other. "Both sides said, 'That's ridiculous, we're not like that at all'.

"Christmas was a great time to merge-we had lots of social events for staff to get to know each other, culminating in one big Christmas party."

Upstream and Print Solutions had operated as competitors, but shared corporate ownership under the Upstream Group. The case for a merger became clear as advances in digital technology meant both evolved and became more alike.

Often, mergers are more abrupt. On the merger of carsales.com.au with the online classified business of ACP Magazines, owned by Publishing and Broadcasting, in October 2005, Roebuck says he would have changed several things and describes it as "a tough experience, but a good one".

The agreement saw carsales.com.au buy ACP's internet classifieds, including Carpoint.com.au, Boatpoint.com.au and Bikepoint.com.au, with ACP taking a 50.4 per cent stake in the new business. "The five-month period in the lead-up to October was all about the deal, not what we were going to do after the deal," Roebuck says. "It took us a few months to get all staff together under one roof. It was not something we thought we needed to focus on, but in hindsight it made the single biggest difference to the focus and culture. There was still an 'us versus them' mentality when we were in separate locations."

A focus on common competitors helped staff integration and none left as a result of the merger, Roebuck says. "We had both been equally competitive with others in the marketplace so we tried to focus staff on a common objective: That our real competitors were outside. We merged part-way through the financial year so we made sure our new financial target exceeded the individual targets of both companies. Hitting those targets helped everyone buy into the merger more quickly."

"Integration of people will always be the biggest challenge. An exacerbating factor for SMEs is that many do not have the human-resources infrastructure ... It is crucial to engage external help in HR upfront. Companies should not do the transaction and think about HR issues from the first day after the merger in a reactive manner."

Mergers that fall apart are those done for the sake of an acquisition without being aligned to a strategic business plan, Winter says. Negotiating the position of two chief executives in a newly merged company can also be tricky. Tilley and his business partner, Gordon Hoen, co-founded the Upstream Group, but run Upstream Technology and Print Solutions independently.

In the new company, Tilley will be chief executive and Hoen will act as executive chairman. "We'll have our offices side by side so it's easy to walk in and chat," Tilley says. "We agreed to be totally honest with our feedback to one another, but also agreed that the other person doesn't necessarily have to act on the advice."

The arrangement may have been helped by three years of groundwork to find the right cultural fit, a partner and director in RSM's business solutions group, Jamie O'Rourke, says. "I looked at 30 to 40 firms for a merger for our Sydney office ... some were not willing to negotiate. Neither Bentley's nor RSM have a big ego style of practice so any role compromises for staff weren't difficult. We hired external firms of corporate psychologists to find out what our staff valued in their culture, and set up our own integration committee."

Communication vital

O'Rourke, who has advised other SMEs on mergers, says planning and constant communication are vital. "The merger took from August to November and we had three partners from both firms meet regularly. Staff got together for Melbourne Cup Day and lawn bowls-the first week we were together, we hosted drinks then a barbecue to send the message that we weren't demanding staff get straight to work."

Tilley communicates with chief executives in similar industries overseas about business issues.

A common theme when discussing mergers is the need to deal with staff fears of uncertainty by keeping people informed about company direction and why a new direction is needed, he says.

A chief executive should face staff and give them the opportunity to ask questions, Tilley suggests. "No matter how much you reassure people, they will always worry about job security," he says.

Tilley forecasts revenue of US$90 million for Upstream Print Solutions this year, compared with US$78 million in 2005-06. "In five years, we would like to float for capital to expand into the USA."

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